The global race for Electric Vehicles

Enter the global automotive market. Road transport accounts for 16% of global carbon emissions ³. It is a fix that has worked before. Back in the 1980’s the world was fretting at the discovery of a hole in the ozone layer. Within the space of a few short years, human technology adapted to change this. The 1987 Montreal Protocol banned a class of chemicals used in refrigerants and aerosols, forever changing automotive engines. Today, the ozone hole is shrinking and could disappear⁴ by 2060.

In the early 1990s, it was the mandatory use of catalytic converters⁵ that changed the face of the global automotive industry, to help the environment. Today, it’s electric cars. Consumers have been turning towards electric cars for two reasons.

A) Successive financial crises have delayed capital spending decisions by consumers. The average age of cars is rising. In Europe, the average age in 2006 was 6.8. Today it’s 11.8⁶. In the US it’s 13⁷.

B) EVs have become more affordable. The drop in EV batteries has caused a massive $53,000 differential in purchase prices between 2010 and 2021⁸.

People simply need new cars, and now they can afford electric vehicles.

In the last three years, the global race for electric vehicles has taken off. The market share of electric vehicles has increased exponentially. In 2013, the EV market has a 0.2% share delivering 206,000 vehicles. In 2022 it boasted a 13% market share and a total of 10,5 million new electric vehicles delivered, an increase of +55 % compared to 2021⁹. According to investment bank Goldman Sachs, Electric Vehicles are projected to be half of global car sales by 2035, selling over 75 million units¹⁰.

Despite rising demand, however, the road is not paved with roses. The quick pace of innovation means that incumbents face stiff competition. Pioneers in the EV and Hybrid market are losing share⁸. Toyota is just 23^rd in terms of EV sales. Tesla is still the biggest name in Battery Electric Vehicles (BEVs), but it doesn’t produce Plug In Hybrids (PHEVs), which account for a quarter of the EV market. Chinese BYD (partly owned by Warren Buffet), has tripled its sales in 2022 and is now the biggest company in the EV market. Volkswagen has made a spectacular turnaround after 2015's Dieselgate¹¹ and is in third place.

However, the European car behemoth has seen its EV growth rate drop, to just 10% last year. BMW, after an aggressive marketing campaign, saw a 30% growth. However, these are dwarfed by the rise in EV sales from Chinese companies. Geely Auto saw its EV sales rise 250% last year. GAC, another Chinese company, saw sales pick up 136%. 

In terms of growth rates, the auto world is now dominated by American and Chinese firms, with Europeans falling behind. Partly this is because of persistent supply chain issues¹². Deteriorating global trade conditions, due to pandemic disruptions, trade wars and geopolitical concerns, have disrupted the cheap flow of goods. Batteries are typically 30% to 40% of an electric vehicle’s cost. Over 75% of materials to build EV car battery cells come from China, which gives Chinese companies a distinctive edge. According to the IEA, Europe is responsible for over one-quarter of global EV assembly, but it is home to very little of the supply chain apart from cobalt processing. The United States has an even smaller role in the global battery supply chain, 10% of EV production, but its close ties with Korea and Japan which have a considerable share of the supply chain help make up for the shortfall. As global supply chains are being reconfigured to account for shifts in geopolitics (on-shoring, friend-shoring), developed market producers are bound to face stiffer competition from Asia.

We think that the future of electric vehicles is exciting and that the future of all vehicles is indeed electric. The infrastructure, however, is only beginning to adapt. As of November 2022, there were just over 2.3 million charging stations worldwide. The number is expected to surpass 16.83 million by the end of 2028.

Nevertheless, we don’t believe we have seen the technology evolve to its apex in terms of cost/reward. There are many twists and turns ahead. A century and a half ago, it was German engineer Karl Benz who built the first automobile powered by an internal combustion engine. The technology and production continued to evolve but it really reached new heights when Henry Ford introduced his assembly line. We think that the climate improvement imperative will continue to drive demand for EV vehicles higher, and that supply chain constraints will force new technological advances in the space.

Sources: 

[1] https://www.oxfordeconomics.com/resource/the-global-economic-costs-of-climate-inaction/

[2] https://newclimateeconomy.report/

[3] https://www.iea.org/reports/electric-vehicles

[4] https://phys.org/news/2023-01-ozone-layer-slowly-hole.html

[5] https://en.wikipedia.org/wiki/Catalytic_converter

[6] https://www.acea.auto/figure/average-age-of-eu-vehicle-fleet-by-country/

[7] https://www.businesswire.com/news/home/20220523005179/en/Average-Age-of-Vehicles-in-the-US-Increases-to-12.2-years-according-to-SP-Global-Mobility

[8] https://www.statista.com/chart/7713/electric-car-battery-prices/

[9] https://www.ev-volumes.com/

[10] https://www.goldmansachs.com/insights/pages/electric-vehicles-are-forecast-to-be-half-of-global-car-sales-by-2035.html

[11] https://en.wikipedia.org/wiki/Volkswagen_emissions_scandal

[12] https://www.iea.org/reports/global-supply-chains-of-ev-batteries